Behind Mexico’s low unemployment rate, a surge in informal work and shrinking formal sector

Annual job creation at the end of the first quarter of this year was the third-lowest in 15 years, driven by gains in the informal sector.

Mexico’s active workforce increased by 551,651 people in the first quarter of the year compared to last year, the national statistics agency INEGI reported on Tuesday.That was the lowest positive job creation figure for the same period since the end of Q1 2011, when Mexico added just 534,469 positions over 12 months.

The worst job creation result in the last fifteen years was the annual loss of over 2 million jobs at the end of the first quarter of 2021. The Mexican economy shed a large number of jobs in 2020, when the COVID pandemic and associated restrictions caused a sharp contraction. The second-worst job creation result in the past 15 years was the loss of almost 120,000 jobs between Q1 of 2024 and Q1 of 2025.

Perhaps even more concerning than the most recent year-over-year job creation figure is that the size of Mexico’s formal sector workforce shrank in the 12 months leading up to the end of March.

The net addition of 551,651 people to Mexico’s workforce between the first quarter of 2025 and the first quarter of 2026 was the result of the creation of 583,153 informal sector jobs and the loss of 31,502 formal sector positions.

Mexico has a huge informal sector that employs well over half of all Mexican workers. These workers, including street vendors and many domestic workers, do not have access to formal sector employment benefits, such as paid vacations. They generally don’t pay income tax.

Analyst: ‘Mexico’s labor market continues to show a deterioration’

In a social media post on Tuesday, the director of economic analysis at Banco Base, Gabriela Siller, highlighted that formal sector employment declined during five consecutive quarters between Q1 of 2025 and Q1 of 2026.

The sustained decline, she wrote, amounts to “a negative streak that had historically only been seen in periods linked to economic recessions.”

Siller also said that “Mexico’s labor market continues to show a deterioration consistent with the economic stagnation.”

Mexico’s economy contracted 0.6% on a quarter-over-quarter basis in the first three months of 2026, while annual growth in the same period was just 0.4%. The sequential contraction was the third of its kind in the past six quarters.

Rogelio Gómez Hermosillo, president of the Citizens’ Action Front against Poverty, put things bluntly: “The economy isn’t creating the quality jobs we need.”

Key Q1 employment data 

Among the other key employment data derived from INEGI’s first quarter National Occupation and Employment Survey (ENOE) was that Mexico’s unemployment rate averaged 2.6% between January and March. President Claudia Sheinbaum said on Thursday that Mexico has one of the lowest unemployment rates in the world.

But Siller said that the unemployment rate is only low because the informal sector “absorbs” people who are unable to find opportunities in the formal sector.

While there are limited unemployment schemes in some parts of Mexico, including Mexico City, the federal government doesn’t offer any unemployment benefits, forcing many people without jobs to seek to make ends meet anyway they can. For millions of Mexicans, that means working in the informal sector.

In its first quarter ENOE statement, INEGI also reported that the informality rate between January and March was 54.8%, up from 54.3% a year earlier.

“Over half of the Mexican workforce lacks benefits and social security, which hinders the country’s progress by keeping workers in a vulnerable situation,” said Fernando Bermúdez Pire, director of corporate relations at staffing company ManpowerGroup.

Bermúdez said that “it is imperative to implement more flexible formal hiring mechanisms and labor formalization policies that are in line with current realities.”

INEGI also reported that 6.6% of workers — some 3.9 million people — were underemployed in the first quarter of 2026, meaning they weren’t working as many hours as they wanted to. The underemployment rate remained unchanged from a year earlier.

Informality rate rises further in April 

Two days after publishing first quarter employment data, INEGI released the results of its National Occupation and Employment Survey for April.

While the unemployment rate fell slightly to 2.5%, the informality rate rose to reach 55.2%, an increase of 0.4 percentage points from Q1.

A total of 448,146 new jobs were created in April, but close to 99.9% of those positions were informal sector ones. Compared to the end of March, Mexico’s formal sector workforce increased by just 608 people.

Jobs were lost in both the agricultural and services sectors in April compared to the previous month, but the secondary sector, which includes manufacturing and construction, added over 1.1 million jobs, resulting in the net growth of almost 450,000 positions. While more than 550,000 construction jobs were created last month, many of the positions in that sector are informal ones.

INEGI’s data also show that the year-over-year gain in jobs was 704,051 at the end of April.

Almost 230,000 formal sector job losses in 2026

In the year to the end of last month, 220,991 new jobs were created, increasing the size of Mexico’s workforce to just over 60.6 million, according to INEGI

The net gain of 220,991 jobs this year is the result of the addition of 450,502 informal sector position and the loss of 229,511 formal sector ones. The decrease in formal sector employment this year appears to be linked to the sequential economic contraction in the first quarter.

“The deterioration of the formal sector continue to be evident,” said Siller, who noted that economic growth in April remained low, at 0.3% in both month-over-month and annual terms, according to preliminary data.

“… Mexico remains trapped in a low efficiency cycle while the informality trend is not reversing,” she said.

What will happen in Mexico’s labor market and economy in the remainder of 2026?

The upcoming FIFA men’s World Cup, which Mexico will co-host with the United States and Canada, should give a boost — albeit a temporary one — to economic growth and could help create additional jobs, especially considering that a significant number of tourists are expected to come to Mexico during the six-week-long tournament.

Sheinbaum has said that an increase in infrastructure spending in the second half of the year, including due to the commencement of new public-private projects, will also spur economic growth, although the Bank of Mexico this week cut its 2026 growth forecast from 1.6% to 1.1%.

While new infrastructure projects should contribute to an increase in employment, reducing Mexico’s stubbornly high — and increasing — informality rate remains a major challenge.

Siller said that “structural” informality not only “compromises workers’ wellbeing,” but also places Mexico’s capacity for long-term growth at risk.

With reports from El Economista

The post Behind Mexico’s low unemployment rate, a surge in informal work and shrinking formal sector appeared first on Mexico News Daily



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